HTC Profit Drops for First Time in Two Years on Mounting Phone Competition

HTC Corp. (2498), Asia’s second-largest smartphone maker, posted its first quarterly profit decline (2498) in two years as competing models from Apple Inc. (AAPL) and Samsung Electronics Co. damped demand for its handsets.

Fourth-quarter net income dropped 26 percent to NT$11 billion ($364 million) from NT$14.8 billion a year earlier, the Taoyuan, Taiwan-based company said in a statement today. The average of 11 analyst estimates (2498) compiled by Bloomberg in the past four weeks was for profit of NT$11.6 billion.

Analysts predict sales and shipments will fall further this quarter after the company cut its outlook for revenue in the last three months of 2011. Sales of HTC handsets, including the Sensation, Wildfire and Rhyme, slowed in the fourth quarter as customers opted for Apple’s iPhone and Samsung’s Galaxy models, and the weaker global economy hurt overall demand.

“Severe competition at the high end from Apple and Samsung forced their sales lower during the quarter,” said Peter Liao, a Taipei-based analyst at Nomura Holdings Plc. which has a “neutral” rating (2498) on the stock. “The key is when they can find their competitive edge, which may not happen until the second quarter at the earliest.”

Fourth-quarter revenue fell 2.5 percent from a year earlier to NT$101.4 billion, missing the NT$103.3 billion average of 11 analyst estimates (2498). Operating margin, which tracks the percentage of sales less operating costs, dropped to 12.8 percent, according to Bloomberg calculations, the lowest in at least three years.

Shipments, Sales

Shipments dropped to 10 million units and will decline to 8.5 million this quarter, according to the median of five analyst estimates compiled by Bloomberg News. HTC sold 13.2 million units in the third quarter and didn’t provide shipment data or estimates for the current or prior quarter.

Sales will fall to NT$85.9 billion in the current three- month period, according to the average of eight estimates.

Chief Financial Officer Winston Yung didn’t immediately answer phone calls today.
HTC, which became the largest smartphone seller in the U.S. in the third quarter, on Oct. 31 forecast that fourth-quarter sales would rise as much as 30 percent from a year earlier. It then cut its outlook on Nov. 23, saying revenue would be little changed.

HTC fell 0.7 percent to close at NT$482 in Taipei trading before the announcement. The shares declined 42 percent last year (2498) and have fallen 61 percent from their April 28 record as analysts cut their ratings on the stock, citing stiffer competition.

HTC may unveil handsets featuring high-speed, fourth- generation wireless chips next month, boosting the shares, Alvin Kwock, a JPMorgan Chase & Co. analyst in Hong Kong, wrote in a Jan. 3 report.
The brokerage is one of nine tracked by Bloomberg that have the equivalent of a buy rating on the stock. Seven recommend selling the shares and 20 suggest holding.

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